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Print articleHong Kong: Update on Investment Adviser Suitability Obligations
June, 2007 -
The SFC's feedback on their recent round of inspections of Investment Advisers (IAs) was shared with members of the Institute of Financial Planners of Hong Kong on 8 May 2007. The SFC reported that the main issues they identified were: insufficient knowledge of clients and lack of justification to illustrate suitability of advice. They also referred to shortfalls by some IAs in the due diligence being performed on products sold, as well as ineffective management supervision and poor documentation.
Importantly, the SFC has advised their plan of response to these findings will be to take rigorous regulatory action against serious breaches of the law, code and rules. The SFC also stressed the need for senior management of each licensed corporation and registered institution to ensure that there is a strong corporate governance culture, and, that there are appropriate risk management policies and internal controls in place.
To assist IAs to better understand their obligations under the Code of Conduct, (paragraph 5.2), the SFC has issued a new "FAQ" on suitability obligations of licensed and registered persons who are engaged in financial planning and wealth management business activities. The full text of the FAQ can be found on the SFC website (http://sfc.hk).
The FAQ provides practical guidance that IAs should take into account in discharging their suitability obligations. These include conducting detailed product due diligence; matching the risk return profile of each product with the personal circumstances of individual clients; providing necessary information to help the client make an informed investment decision; ensuring staff are competent and well trained; and documenting the reasons for each product recommendation.
Importantly, the SFC has advised their plan of response to these findings will be to take rigorous regulatory action against serious breaches of the law, code and rules. The SFC also stressed the need for senior management of each licensed corporation and registered institution to ensure that there is a strong corporate governance culture, and, that there are appropriate risk management policies and internal controls in place.
To assist IAs to better understand their obligations under the Code of Conduct, (paragraph 5.2), the SFC has issued a new "FAQ" on suitability obligations of licensed and registered persons who are engaged in financial planning and wealth management business activities. The full text of the FAQ can be found on the SFC website (http://sfc.hk).
The FAQ provides practical guidance that IAs should take into account in discharging their suitability obligations. These include conducting detailed product due diligence; matching the risk return profile of each product with the personal circumstances of individual clients; providing necessary information to help the client make an informed investment decision; ensuring staff are competent and well trained; and documenting the reasons for each product recommendation.
